1. What is the Amortization Formula?

The amortization formula calculates the fixed monthly payment required to pay off a loan over its term, including both principal and interest components.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount

Explanation: The formula accounts for the time value of money, calculating equal payments that will pay off the loan exactly by maturity.

3. Importance of Amortization Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows how much of each payment goes toward principal vs. interest.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing, while APR includes additional fees. This calculator uses the interest rate.

Q2: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q3: Are there loans this formula doesn't work for?
A: This works for fixed-rate loans. Adjustable-rate loans or loans with balloon payments require different calculations.

Q4: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans, but actual payments may vary slightly due to rounding or additional fees.

Q5: Can I see an amortization schedule?
A: This calculator shows the monthly payment. For a full schedule showing principal/interest breakdown each month, use an amortization schedule tool.